Why are Headhunter's fees usually 30% to 50% of a first-year salary for a placed candidate? I occasionally receive questions about the fee structure for placements I make as an Executive Recruiter/Headhunter, and thought it might be constructive to explain.

In the early days of the Industry (i.e. "Search") it was calculated by diligent researchers, economists, CEOs and hiring managers that the fair cost to a company, of NOT having a person in a needed role (i.e. the Recruiter's "fee"), is usually about one-third to one-half of the yearly salary of the position. This is a simple calculation: every month the position is unfilled, the cost of the monthly salary is lost by the company which needs to hire, since the services they need are not provided. How long does it take to fill a position? Usually three to six months.

The cost-benefit analysis of revenues lost by not filling a key position are rather clear-cut, indicating that the services of a Recruiter with a great network, and strong technical knowledge, who successfully fills that position, are completely worth the industry standard of 33% of the first-years' salary + bonus + stock options. I've been told by my Ivy-League friends who are hiring executives that they have not balked at paying 50% fees for a key candidate, as well.

People who quibble with my fees annoy me, and rightly so. My fees are already highly discounted down to 25%. I recently had an experience where a rather naive individual offered me a mere 10% for my work. This is incredibly offensive, of course. I will not work with anyone who insults my decades of expertise and accomplishments.

Word to the wise: This is the time of the highest demand for candidates in the past 50 years. Recruiter fees are completely fair and reasonable, and efforts to diminish them will end in failure, based on simple principles of Economics: supply and demand, specifically. I discussed this issue tonight with a couple of friends who are Economists on the faculty of UCLA, a University founded by my great-great grandfather.

In any case, rest assured that the fee structure for Executive or Technical search (especially Retained search) is extremely fair and well-worth the investment. I offer Retained search at a discounted rate, to incentivize my clients. Many people forget, or don't understand, that the closure rate of successful placements in Retained searches is about 2x or 3x that of Contingency searches (where a fee is only due when a candidate is actually hired and starts). Most competent Recruiters know that Contingency searches are only successful about a third of the time, so they will typically "juggle" multiple searches (from 3 to 10 is fairly common), counting on the odds to allow them to earn fees.

MORAL: You get what you pay for, and efforts to shortcut or cheat the system are mostly just foolish, and evidence of a lack of seriousness about hiring.